On the Role of a Stock Market: A Study of France, Germany, and thez Euro Area
AbstractWhat factors cause banks to lend to the private sector in a bank-based financial system like the ones in place in Europe? In this paper we compare a traditional demand oriented model to a non-traditional capital budgeting model of bank lending based on movements in the equity cost of capital for France, Germany, and the Euro area. Using non-nested hypothesis tests and omitted variables tests we find that we can reject the traditional demand oriented model of bank lending and fail to reject the capital budgeting model of bank lending for Monetary Financial Institutions in France and the Euro area. For Germany the evidence is mixed in that both models are rejected for Monetary Financial Institutions, but only the traditional demand oriented model is rejected for the commercial bank sector. Even though Europe may be a bank-based financial system, it appears the stock market plays a key role in the lending decisions of banks.
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Bibliographic InfoPaper provided by Banque de France in its series Working papers with number 221.
Length: 34 pages
Date of creation: 2008
Date of revision:
Bank Loans ; Stock Market ; Non-nested Hypothesis Tests;
Find related papers by JEL classification:
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- G2 - Financial Economics - - Financial Institutions and Services
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